Students should avoid debt by Thomas Oliver, June 07, 2009
Incoming college
freshmen beware: Credit card companies have until February to sign you up.
After that, the new credit card law goes into effect and parents will have to
co-sign before students under 21 can have plastic in their own name.
“Students
need to be careful this fall because of the very aggressive marketing”
that is expected, says Suzanne Boas, president of the Consumer
Credit Counseling Service of Greater Atlanta. She’s seen the
damage done by too much credit card debt. “It’s so incredibly easy
to overspend with credit cards,” Boas said. “But what gets you in
trouble is paying it off over time. And you can pay so little and still stay in
the good graces” of the credit card company.
Too much debt is
too easily acquired but so hard to get rid of. It seems as though the sins of
the parents are playing out in the lives and financial debt obligations of our
children. Sallie Mae, the nation’s leading student loan provider,
says students are carrying record-high credit card balances. Like mommy and
daddy.
The average
student balance is $3,173. They graduate owing $4,100. Twenty-percent of
graduating seniors owe $7,000. At an average interest rate of 13.5, it would
take 10½ years paying $164 a month to repay $4,100. Or 12 years at $280 a
month, to repay the $7,000. In leading our children into all the ways of debt
and financial entanglement, we have now made student loan debts almost as
traditional as Rush Week.
According to FinAid.org,
the National Postsecondary Student Aid Study revealed that
two-thirds of students graduate with an average student loan debt of $19,237.
Twenty-five percent graduate owing $24,936. And we’re just talking
undergraduate degrees. Post-graduate credentials can hit six figures before you
can say the Hippocratic Oath or habeas corpus.
Assuming a
generous repayment interest rate of 7 percent over 10 years, your graduate will
be paying $232 a month on the average debt. For the one in four with the larger
debt, it’ll cost them $290 a month. Between credit cards and student
loans, far too many of our children are on a road to serfdom, graduating with
debts not usually associated with bright futures.
Check out what
can’t be that unusual of a situation: Graduate owes $4,100 on credit card
and $20,000 in student loans. For about 10 years, that will blow a $400 a month
hole in his or her budget. And that’s before rent, food, utilities, gas,
phone service, etc. etc. Boas says students should have credit cards for
emergencies. Not to subsidize their lifestyles. And they certainly
shouldn’t be carrying large balances on multiple cards. No, they
shouldn’t do what their parents have done.
But it’s not
too late for parents to demonstrate some financial sense. In addition to
speaking to our youth about drugs and sex, we ought to speak frankly about
debt. We need to be honest and tell them of the lessons learned the hard way.
As with every generation, actions speak louder than words.
Thomas Oliver can be reached at [log in to unmask]